Private Sector Development

Informality is the subject of many a report, study, intervention, policy brief, political agenda and fireside chat, and due to its prevalence, rightfully so. In emerging and developing economies, the informal sector accounted for 32% of GDP and 70% of employment in 2016. This is a concern because informal firms tend to be less productive than formal firms and pay workers less than their formal counterparts. Reversing informality is enticing and promises rewards in the form of potential tax revenues, productivity gains, and poverty eradicating capabilities. But the quest to bring more firms and workers into the formal sector has proven to be complex.

Brainstorming session at the Bamako Policy Hackathon. Photo: World Bank

What would happen if you put all the relevant players for the entrepreneurial ecosystem — startup founders, policymakers, developers, students, investors — into one room and facilitated an open dialogue on improving the business environment? This is exactly what is taking place in West Africa through a series of policy hackathons supported by the World Bank.

“We all have a stake in development and this multifaceted process – local, top-down, bottom-up – is a great example of African innovation. Civic engagement in policymaking is not happening elsewhere so it’s not just about importing knowledge and best practice but generating lessons we can export to the rest of the world,” said Sebastian Molineus, World Bank Director of the Finance, Competitiveness and Innovation (FCI) Global Practice about policy hackathons taking place in West Africa, at a recent World Bank Brown-Bag Lunch in January.

“The training has completed my knowledge about open innovation. I can now go and talk to potential clients to identify their needs and show what we can offer them.” -- Mariem Kane, Hadina RIMTIC incubator

Tech startups and business angels are not what comes to mind when thinking of the Czech Republic (CR). Instead, this small central European country is known for its beer, scenic bridges crossing the Vltava river, and existential writers. Not so easy to add “vibrant entrepreneurial hub” to the list as it celebrates the 100th anniversary of Czechoslovakia. Nevertheless, that's exactly what the CR policymakers intend to do.

Starting a business is a risky endeavor and requires courage. It is also an opportunity. Whether this opportunity will materialize depends on how well the aspiring entrepreneur is prepared and how adaptable the startup is. Equally important is the policy and legal framework that can mitigate the risk and increase chances of success.

Company registration is one of the cornerstones of a functioning economy. A business register maintains the repository of data on companies authorized to operate in a given jurisdiction. With many businesses appearing every day, company registries play a key role in formalizing the economy, promoting access to finance for small enterprises, and ensuring legal protection for investors. The breadth of the information stored in the registers also help policy makers follow business dynamics and study the impact of business environment reforms.

When I asked a table of Nigerian bankers whether corporate debt to finance solar off-grid and mini grid companies would find favor in local capital markets, they literally laughed at the idea. No, they said very clearly, there’s no mandate for green here, certainly not among the funds they represented, and off-grid solar was new and untested anyway.

Such reluctance of many local financial institutions (FIs) to invest has been a major impediment to the Nigerian solar off-grid market which lags compared to other African countries such as Kenya.
Nigerian solar companies discuss finance model

A year ago, Farzana had no idea that an online business would so drastically change her life. She was drowning in debt with no way of repaying, worrying about her family’s financial future. Reaching for a lifeline, she joined GharPar, a women-founded, women-led social enterprise that connects beauticians with clients seeking at-home salon services through an Uber-like digital platform.